1. The required return for a stock is based on the dividend yield________________

plus the capital gain yield.

minus the capital gain yield.

divided by the capital gain yield..

multiplied by (1 + capital gain yield).

2. Dividends are not tax deductible for firm, but are taxed as ordinary income for individuals and

the dividends received by corporations generally have a minimum 70% exclusion from the

taxable income.

True

False

3. The price of the stock is the present value of all dividends that have been paid.___________

True

False

4. If shareholders are granted a preemptive right they will be:

given the choice of receiving dividends in cash or in additional shares of stock.

granted shares that receive additional voting privileges.

able to determine who the candidates should be on the board.

given the first right to purchase any new shares of stock that are issued.

5. Which one of the following markets deals only with newly issued shares of stock?

NYSE

NASDAQ

primary market

secondary market

6. Suppose a zero growth stock is expected to pay a $1.0 dividend every quarter and the

required return is 5% with quarterly compounding. What is the price?

$20

$40

$80

$100

7. If the dividend in year 4 is $1.20 and the growth rate is 3%, then the dividend in Year 7 is

equal to:

$1.20 X (1.03)3.

$1.20 X (1.03)4.

$1.20 X (1.03)5.

$1.20 X (1.03)6.

8. The expected dividend yield, as used in the constant dividend growth model, is equal to:

r

g

D1 / P0

r g

9. A company is expected to pay their first annual dividend 2 years from now. That payment will

be $1.50 a share. Starting in Year 3, the company will increase the dividend by 5% per year.

The required return from common shareholders is 15%. What is the estimated value of this

stock today?

$12.10

$13.04

$15.28

$16.50

10. A firm just paid their annual dividend of $2.0 a share. They recently announced that all future

dividends will be increased by 6% annually. What is one share of this stock worth to you if you

require a 15% rate of return?

$18.2

$23.6

$22.2

$21.0